Monday, February 23, 2009

California Budget Includes Tax Relief for Film, TV Shoots

Incentives long sought by the entertainment industry should help keep productions at home.By Richard Verrier February 20, 2009

Gov. Arnold Schwarzenegger, a former movie actor, has been trying for years to get tax credits to keep California's signature industry at home.

He got his wish early Thursday when the Legislature approved tax credits for film and television productions as part of an economic stimulus provision of the new state budget.

The credits -- capped at $500 million over five years -- are modest compared with those offered by other states.

Still, the announcement was welcome news to many in Hollywood who were skeptical that the Legislature would help the entertainment industry given the enormousness of the task of plugging the state's $42-billion budget gap.

"We applaud the passage of this incentive, which will help make California competitive and not only save jobs that are being lost but generate much-needed revenue for the state," said a joint statement from Hollywood's actors and directors unions and the Motion Picture Assn. of America, which have been lobbying for the credits for a decade.

Previous attempts by Schwarzenegger to secure such credits have been torpedoed by lawmakers who viewed them as a handout to Hollywood. But those arguments weakened amid mounting evidence that other states were poaching jobs from Southern California.

More than 30 states now offer tax credits and rebates to lure production crews to their locales. New York, New Mexico, Louisiana and Michigan have seen a surge in production and jobs since implementing incentive programs, contributing to historic lows in L.A. shoots.

"So much has disappeared, anything we bring back will be a boon," said Paul Audley, president of FilmL.A., which processes filming permits.

The tipping point came last summer when ABC moved production of its sitcom "Ugly Betty" to New York from Los Angeles, creating an uproar among hundreds of crew members.

Attracting such shows back is the primary aim of the new incentives, which offer a 25% tax credit for TV series that relocate to California. Low-budget independent films with budgets of $1 million to $10 million will also be eligible.

Producers of new films and TV shows can claim a 20% credit that they can use to offset their income and sales tax liabilities. However, the deduction can be applied only to so-called below-the-line costs such as crew members' wages and not to the salaries of actors, writers or directors. The credit would exclude movies that cost more than $75 million.

The program caps annual funding at $100 million, a relative drop in the bucket considering the average cost of a studio movie is about $70 million.

By comparison, New Mexico offers a 25% rebate on production costs and does not have a cap. Neither does Michigan, where filmmakers get up to 42 cents back for each dollar they spend on filming.

"It's hard to understand how [California's tax credits are] going to be competitive with states that actually have incentives where the credits are much higher," said attorney Peter Dekom, who helped craft New Mexico's rebate program.

Jean Prewitt, chief executive of the Independent Film and Television Alliance, also questions how effective the program would be, but added: "This is the first time the California Legislature has recognized what an important economic driver film production is, so in that sense it's important."

Supporters said the tax credits, however, were a step toward more comprehensive incentives and would have an immediate effect. Culver Studios Chief Executive James Cella, who worked on the proposal, estimated that the credits would shave up to 13% off the budget of a $2.5-million TV series. "That's enough to make us competitive," he said.